UNCLAS SECTION 01 OF 02 BRASILIA 001384

SIPDIS

STATE FOR WHA/BSC, EB/TPP/MTA/IPC SWILSON, INL BWILLIAMSON
STATE PASS TO USTR FOR SCRONIN, LYANG AND BPECK
USDOC FOR
4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL/ADRISCOLL
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO
TREASURY FOR OASIA/SEGAL
NCS FOR DEMPSEY

E.O. 12958: N/A
TAGS: KIPR KCRM PGOV ECON BR IPR
SUBJECT: BRAZIL ARRESTS MAJOR TRAFFICKER OF PIRATED GOODS

Refs: A) 2003 Sao Paulo 2199 B) 2003 Brasilia 3564


1. SUMMARY: Brazilian Federal Police arrested June 1 one of
the country's biggest pirated goods smugglers, Law Kin Chong,
and his lawyer Pedro Lindolfo for corruption, conspiracy to
commit bribery, conspiracy involving organized crime
(racketeering) and disrupting the functioning of a
Parliamentary Investigative Commission (CPI). Chong, through
his lawyer, allegedly attempted to bribe Piracy CPI President
Deputy Luiz Medeiros (PL-SP) with US$1.5 million to avoid being
mentioned in the CPI's final report. The lawyer was
apprehended in Medeiros' Sao Paulo office offering the deputy
US$75,000 as the first installment of the bribe. Both Lindolfo
and Chong were transferred to Brasilia June 3 for security
reasons and await formal hearings. Chong, owner of three
popular shopping malls in downtown Sao Paulo, is said to be the
head of a contraband mafia that is responsible for the
trafficking of a significant portion of pirated goods in
Brazil. The Piracy CPI has targeted Chong for months, and took
him in for questioning in November 2003 (ref A). End Summary.


2. The Chamber of Deputies' Parliamentary Investigative
Commission on Piracy (CPI) scored a major bust on Tuesday, June
1 with the arrest of Law Kin Chong, a Chinese businessman
(naturalized Brazilian). Chong owns three shopping centers in
downtown Sao Paulo selling mostly pirated goods and is thought
to lead a major smuggling ring in Brazil. According to press
reports, Chong's lawyer was arrested in the Sao Paulo office of
CPI President Deputy Luiz Medeiros on June 1 with the US$75,000
he offered to Medeiros as the first installment of a US$1.5
million bribe to keep Chong out of the CPI's soon-to-be-
released final report. Chong himself was arrested an hour
later in a Sao Paulo parking lot, reportedly trying to flee to
Paraguay.


3. Medeiros told the press that the Federal Police had been
mo

nitoring exchanges among Chong, his associates and Medeiros
for over a month, initiated when Chong offered to assist the
CPI by providing information. Medeiros arranged a meeting with
Chong's lawyer during which the bribe was offered in the
presence of Medeiros' security guard, a Federal Police officer.
Medeiros did not refuse the bribe, alerted the Federal Police,
and had subsequent meetings in Sao Paulo with Chong and/or his
associates that were taped by the Federal Police. Chong and
Medeiros reached a final agreement May 29 for US$1.5 million to
be paid in five installments.


4. After the June 1 arrests in Sao Paulo, the two suspects
were transferred to Federal Police custody in Brasilia,
reportedly for security reasons. Police seized computers,
documents and millions in U.S and Brazilian currency from
Chong's accounting office and currency-exchange business, all
to be examined at Federal Police headquarters in Brasilia. The
lawyer handling Chong's defense told journalists that he would
request the repeal of Chong's arrest and seek a writ of habeaus
corpus (injunction or stay) if the request is denied.


5. Chong has been the target of several investigations over
the last seven years, according to press accounts. Widely
believed to be the biggest smuggler in the country, he
reportedly has ties to authorities throughout the government
and was involved with judge Rocha Mattos, currently under
investigation for corruption, as well as federal police
officials arrested during Operation Anaconda, a big corruption
sting operation carried out last year (ref B, para 9). He is
also under investigation for money laundering and tax evasion.
The CPI targeted Chong last year, raiding two of his shopping
centers and bringing him in for questioning in November 2003.
Despite closure of the stores ordered by the Department of
Investigations of Organized Crime (DEIC) following the raid,
Chong obtained court orders forcing the reopening of the stores
and the return of all seized merchandise. Chong was also
quickly released (ref A). The CPI had scheduled a public
hearing on their final report for June 3, but delayed the event
until June 8 in view of the Chong arrest.


6. Comment: The timing of the arrest serves to highlight the
work of the CPI as it nears closure later this month. It will
likely be more difficult for Chong to quickly and fully escape
unscathed from this arrest due to the CPI's spotlight of public
scrutiny and the hard evidence against him, but he has shown he
has the wherewithal to get high-level officials to weigh in
heavily in his favor. Some Sao Paulo IPR contacts have already
expressed doubt that he will remain in custody or that the
charges against him will stick. Mission will continue to
follow the case as well as developments regarding the CPI. End
comment.


7. This message was coordinated with Consulate Sao Paulo.

HRINAK